Tough times forecast for New Zealand

Press, 28 March 1980, Page 1

Tough times forecast for New Zealand

JNZPA London

! More economic ills for New Zealand were forecast yesterday by the-Paris-based Organisation for Economic Co-operation and Development (0.E.C.D.). . . t

In its annual survey, the 23-nation group of industrialised countries said New Zealand could expect little economic growth this year, increased inflation, continuing high unemployment, and a persis t en t balance-of-pay-ments problem. It warned New Zealand against regarding energybased development projects as a panacea for deep-seated economic difficulties.

“They are not a substitute for the necessary structural changes in the New Zealand economy," it said.

New Zealand is among the smallest countries and weakest economies covered by the 0.E.C.D.. whose membership is centred on Western Europe, North America, and Japan.

Communist States and major oil-producing countries are not members.

Although its predictions for the future of the country were mostly pessimistic, it did £ay the economic troubles were not entirely New Zealand’s fault.

While urging the Government to increase exports and increase competition, it acknowledged that widespread trade restrictions applied to New Zealand’s farm exports—the greatest percentage of outgoing goods — were a major constraint on the economy. Other countries. ’ especially the European Economic Community States, the United States, and Japan among its own membership, could help New Zealand by lifting

tariff barriers and other restrictions to trade. However, the O.E.C.D. report said that the shortterm responses to external and internal events had tended to increase the rigidities in the system, which made progress more difficult. The initiatives taken last year — such as the removal of price controls, improved flexibility in import regulations, the acceleration of the review of resource allocation in protected. sectors, and the new exchange rate system aimed at easing the medium adjustment system — were to be welcomed, the report said, but the momentum of change should be hastened. The O.E.C.D. has shown before that it is long on advice but short on get-

ting action on its advice. Its ministerir.l meetings in June every year—which the Prime Minister (Mr Muldoon) plans to attend this year — call for an end to restrictions on agricultural trade, and the O.E.C.D. in its last report on New Zealand urged the country’s trading partners to drop barriers. However, the pleas have fallen mostly on deaf ears.

The O.E.C.D. said that if there were no more sharp increases in oil prices, the economy might move on to a'steadier course later in the year, but weaker growth in other Western countries would still hit export prospects. Worsening terms of trade would probably wipe out any hope of improving on last year’s S7OO million deficit in its balance-of-payments current account — equivalent to about a high 3.5 per cent of gross domestic product (G.D.P.).

Private investment was almost certain to be weak, the organisation said. Consumer price inflation was likely to rise to 16 per cent"from 14 per cent last year and total wages were expected to be increased by 16 or 17 per cent.

New Zealand could expect an increase in real growth of 0.75 to 1 pet; cent this year after falling slightly in 1979.

The rising emigration rate was not helping thecountry’s economic growth rate, but it was keeping unemployment at a relatively steady, although high, level.. The improvement in trade which New Zealand had enjoyed for the last IS months was ending and was likely to be reversed at least partly in 1980, the O.E.C.D. said.

Export prices are fore-’ cast to rise by about S per cent compared with 17 per cent"'in 1979, and the O.E.C.D. puts the com-i parable rise in import i prices as likely .'to be about 10 per cent.

Private investment: seems almost certain to be; weak, falling by 2 percent after a 2.25 per cent growth last year, >partly: reflecting an expected' drop in housing because; of continuing emigration.) This means the final! domestic demand will riseabout 0.25 per cent) against 0.75 per cent in 1979. i

New Zealand’s first | economic priority must be; to reduce inflation while! ensuring steadier demand' management of the economy than in the past, given i the expected worsening in i trade, the O.E.C.D. said, j